European defence spending is on the rise as the continent grapples with an increasingly disinterested US. Which are the top funds and trusts for exposure to this stark new reality?
Funds containing the top stocks for the defence spending boom are enjoying a bull run at the moment. Every day seemingly brings more news of European defence spending commitments, as the continent shakes off the complacency that has set in after decades of the US effectively guaranteeing its security.
European defence stocks have seen significant gains so far this year off the back of the spending commitments.
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“European defence spending has surged in response to growing security challenges. We’ve gone from just six NATO members meeting the 2% of GDP target in 2021 to 23 today – a historic shift,” says Tom Bailey, head of research at HANetf.
“But despite this increase, Europe still faces an €850 billion cumulative defence investment gap since 2014, reinforcing the need for sustained investment in military capabilities.”
“The case for defence stocks seems all too clear, with defence forming a central part of the chancellor’s Spring Statement,” said Annabel Brodie-Smith, communications director at the Association of Investment Companies (AIC).
Chancellor Rachel Reeves’s Spring Statement reiterated previous pledges by prime minister Keir Starmer to ramp up the UK’s spending on defence, with £2.2 billion added to the defence budget in 2025/26 and a target for defence to account for 2.5% of GDP by April 2027.
Some individual European defence stocks like BAE Systems and Rolls-Royce are enjoying strong rallies off the back of increased spending commitments. The share price of Rheinmetall, the largest defence firm in Germany, has more than doubled so far this year.
But which exchange-traded funds (ETFs) and investment trusts can investors use to gain diversified exposure to the trend?
Investment trusts for European defence exposure
“Some defence companies have seen their share prices soar but that’s not the case across the board,” says Brodie-Smith. “We have identified the investment trusts with exposure to defence which might be best placed to benefit.”
The AIC analysed the investment trusts that have the most defence exposure and singled out the Schroder UK Mid Cap Fund (LON:SCP), which the AIC says has 10% of its assets allocated to defence.
“Our view is that we are at the start of a defence growth supercycle and that’s an area in which the UK is very skilled,” said Jean Roche, manager of the Schroder UK Mid Cap Fund.
Here’s the top 10 investment trusts for defence exposure, according to the AIC:
|
Investment trust |
AIC sector |
% of assets in selected defence stocks* |
|---|---|---|
|
Schroder UK Mid Cap Fund |
UK All Companies |
10.90 |
|
Global Opportunities Trust |
Flexible Investment |
7.75 |
|
Invesco Global Equity Income Trust |
Global Equity Income |
5.40 |
|
Law Debenture Corporation |
UK Equity Income |
5.33 |
|
JPMorgan Claverhouse |
UK Equity Income |
4.70 |
|
Artemis UK Future Leaders |
UK Smaller Companies |
3.90 |
|
City of London Investment Trust |
UK Equity Income |
3.80 |
|
European Opportunities Trust |
Europe |
3.67 |
|
European Assets Trust |
European Smaller Companies |
3.40 |
|
Henderson Smaller Companies |
UK Smaller Companies |
3.31 |
Source: theaic.co.uk / Morningstar / trust reports and factsheets. Latest available data at 27/03/25.
* Shows exposure to AeroVironment Inc, Airbus SE, Babcock International Group, BAE Systems, Boeing Co, Chemring Group, Dassault Aviation SA, GE Aerospace, General Dynamics +C7Corp, Howmet Aerospace, L3Harris Technologies, Leonardo DRS, Lockheed Martin, Northrop GruMman, Palantir Technologies, QinetiQ Group, Rheinmetall AG, Rolls-Royce Holdings, RTX Corp, Safran, Textron, Thales and TransDigm Group.
Top ETFs for European defence
There are various ETFs available for investors that want to gain exposure to defence stocks.
One of these is the Van Eck Defense UCITS ETF (LON:DFNS), which tracks the MarketVector Global Defence Industry index. According to Trustnet, this was the first defence-focused ETF that European investors could buy when it launched in March 2023.
A newer addition is the Future of Defence UCITS ETF (LON:NATO) from HANetf. This fund was launched in July 2023, and passed £1.5 billion in assets under management (AUM) earlier in March – having increased AUM by £700 million in 2025 already by that point.
“The ETF’s NATO screen sets it apart from its peers, ensuring that investors are gaining exposure to NATO and NATO+ ally domiciled defence companies, while avoiding companies operating in countries that could one day be adversaries to the alliance,” says Hector McNeil, co-founder and co-CEO of HANetf. He suggests this screen makes NATO “truly unique” among defence funds.
Building on the success of NATO as investors have flocked to the fund this year, HANetf recently announced plans to launch a fund specifically focused on European defence. It will follow a similar strategy to the NATO fund otherwise, though it will also screen out companies with high revenue exposure to controversial weapons.
“We believe that, as a proudly European ETF firm, it is our duty to support investment into the European defence sector as efficient capital markets will allow European champions to expand their capabilities much more efficiently,” says McNeil.
